TOPEKA CAPITAL JOURNAL: Kansas law requiring the budget to have leftover cash often ignored. Should it be in the constitution?

Jonathan ShormanSeptember 26, 2016

Kansas has a law that would ensure the state has leftover cash each year and would insulate government from all but the most drastic revenue fluctuations.

Lawmakers frequently ignore it.

State law requires a positive annual budget ending balance of 7.5 percent of expenditures. But the Legislature regularly suspends the requirement.

A memo released by legislative researchers last week indicates Kansas is already experiencing a $20 million shortfall, just two months into the fiscal year. The state began the fiscal year with a projected end balance of just $5 million.

That’s just 0.1 percent of expenditures.

A Republican lawmaker who sits on the House Appropriations Committee believes the ending balance requirement should potentially be placed into the state constitution. As a constitutional amendment, the Legislature wouldn’t be able to simply suspend the requirement when convenient.

“Maybe that ought to be a constitutional amendment. Well, just think about it. As long as it’s just a statute, no Legislature can ever bind another Legislature,” said Rep. Dan Hawkins, of Wichita. “I think that would be a good thing to toss out next year. I’ve got to think the people of Kansas would support that. I can’t imagine the people of Kansas not supporting that.”

Currently, the ending balance requirement is relatively toothless. The requirement was enacted in the early ’90s. Publications from the governor’s budget office show the requirement was suspended each year for a decade, from 2003 to 2012.

In several of those years, the ending balance exceeded the requirement, however. From 2004 to 2008, Kansas ended its fiscal years with a balance greater than 7.5 percent. The largest amount came in 2007, when the balance sat at 16.7 percent.

Lawmakers left the ending balance requirement in place in 2013, and the state had an 11.6 percent balance that year. The Legislature has gone back to suspending the requirement in the years since, however.

In fiscal year 2014, the balance sat at 6.3 percent; in 2015 it fell to 1.1 percent. And in fiscal year 2016, which concluded in June, Kansas had an ending balance of just 0.6 percent — about $37 million. The positive balance came after multiple rounds of budget cuts.

Any legislative push to advance a constitutional ending balance requirement next year would come amid what is almost certain to be a wrenching debate over spending and taxes. A number of moderate Republicans and Democrats are expected to be elected on the promise of reversing the state’s budgetary woes.

They’ll likely clash with conservative Republicans, and each other, over how to do that — whether to raise taxes, cut spending, or both.

Tom Cox, a Republican hopeful from Shawnee who ousted Rep. Brett Hildabrand in the August primary election, didn’t rule in or out a constitutional ending balancing requirement during an interview, but he said everything has to be on the table. Such a requirement could be part of the discussion over preventing budget problems from developing again.

“We’ve got to talk about everything to get our state on track,” Cox said.

Senate Minority Leader Anthony Hensley, D-Topeka, warned that constitutional requirements had not worked well in other states and had tied the hands of lawmakers in making budgetary decisions.

“When you put something in the constitution, it’s very difficult then to try to change it as economic conditions and budget issues change over time. So you want to be very careful about constitutional requirements,” Hensley said.

“And you’re right, this 7.5 percent ending balance requirement hasn’t been followed in years — through at least three different administrations I can think of. But it was a good idea at the time.”

But, Hensley said, he supports a rainy day fund for future contingencies. Earlier this year, lawmakers voted to create such a fund.

Hensley said the state’s revenue problem was self-inflicted by Gov. Sam Brownback’s tax policy. The governor’s office didn’t immediately respond to a question about whether Brownback would support a constitutional end balance requirement.

According to the Pew Charitable Trusts, Kansas became the 47th state to create a rainy day fund. For now, however, the fund effectively exists in theory — no money has been appropriated for it.

Kansas’ ending balance requirement is unusual among states, said Jared Walczak, a policy analyst with the conservative-leaning Tax Foundation.

Duane Goossen, a former state budget director now affiliated with the Kansas Center for Economic Growth, said the end balance requirement in the past functioned as a kind of rainy day fund. Now, Kansas has both, but cash in neither.

“Part of restoring financial health to Kansas will be getting money into that rainy day fund,” Goossen said.

In Kansas’ current fiscal climate, going from an ending balance of effectively zero to 7.5 percent would require significant cuts or tax increases. Hawkins acknowledged that there would likely have to be a ramp-up period to meet a constitutional ending balance.

He also said the ending balance requirement wouldn’t necessarily have to be 7.5 percent but could be lower, perhaps 5 percent.

“Have it to where a Legislature can’t just sidestep that, but we have to do it,” Hawkins said. “And let’s put some fiscal discipline back into the political process.”